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A just-released business survey finds that most companies would cut stock option awards to rank-and-file workers if regulators require such grants to be counted as an expense in the financial statements. Mellon Financial Corp. finds that three-quarters of the 108 companies surveyed expect to eliminate or reduce stock grants to nonexecutives. Hurt much less would be top executives. Only 21 percent of those surveyed expect to reduce awards to senior officials, a group that already receives stock at a higher rate. The survey, completed last month by Mellon’s Human Resources & Investor Solutions division, is especially noteworthy because Mellon queried a broad range of businesses. Most prior studies have looked at the high-technology sector, which relies heavily on options. “While stock compensation will not be abandoned entirely, it will certainly result in greater cuts for rank-and-file employees than for executives,” said Brett Harsen, a senior consultant in Mellon’s compensation practice. Rebecca McEnally, vice president for advocacy at the CFA Institute, an association of investment analysts, questions whether FASB should give the study any weight. The survey focuses on what companies will do if accounting standards change, she said. That is immaterial. What counts is whether the proposal creates an accounting standard that would better safeguard investors “Accounting is supposed to provide transparency and to say, ‘If you make me do this, I’m going to do that’ is not a valid argument,” she said. McEnally adds that accounting for stock options does not change the underlying economics of a company, and if it does, “it means maybe they shouldn’t be doing it in the first place.” The report is expected to be cited by supporters of the Stock Option Accounting Reform Act as part of their campaign to convince the Senate to act on the measure, which recently passed the House. The legislation, crafted by Rep. Richard Baker, R-La., requires expensing only the options given to the top five executives of a company. Especially hard hit by the FASB plan will be so-called discounted employee stock purchase plans, which are structured to ensure even lower-paid employees receive stock options. Ted Buyniski, an author of the study and principal in Mellon’s compensation consulting practice, says these plans — which encourage broad participation by employees — will be expensive for companies because every dollar in options must be accounted for the income statement. Copyright �2004 TDD, LLC. All rights reserved.

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